Shareholders? Fuhgeddaboudit! It’s that time of year when shareholders speak their minds at annual meetings. But that doesn’t mean the companies’ boards are always listening.

May 25, 2013

Shareholders? Fuhgeddaboudit!


WE are nearing the end of proxy season, that once-a-year moment when shareholders can speak their minds, sort of, to the officers and directors overseeing their companies. But that doesn’t mean corporate boards always listen.

Consider what happened after the May 14 annual meeting of the CommonWealth Real Estate Investment Trust. Joseph L. Morea, a CommonWealth trustee, was up for re-election, and more than three quarters of the shares voted were cast against him. Under the company’s guidelines, this meant that he had to resign. CommonWealth, as is typical at many companies, requires that its independent directors resign if they don’t receive majority support from shareholders for their re-election.Mr. Morea dutifully stepped down. But that was not the end of it. The next day, CommonWealth said its board determined that Mr. Morea’s loss seemed related to its battle with outside shareholders hoping to oust the trustees, rather than to any personal failings. As a result, it said, the board had “requested that Mr. Morea accept appointment to the vacancy created by his resignation.” So he returned to the board and will serve on three of its committees: those relating to audit, compensation — and nominating and governance.

You’d never know that the shareholders, a majority of whom voted against Mr. Morea, were the actual owners of CommonWealth. As a point of reference, the trustees who reappointed him to the board own only one-quarter of 1 percent of the company’s shares. CommonWealth declined to comment further.

Flouting its own trustee-election policies, as CommonWealth did, was brassy. But its board is by no means the only one that has thumbed its nose at concerned shareholders. A recent maneuver by Urban Outfitters, the retailer of youthful casual clothing, accessories and housewares, brings a new twist to the concept of good shareholder relations.

A vocal band of institutional investors in Urban Outfitters is concerned about board diversity. In the last three years, these investors have argued that the company’s all-male board is too homogeneous. They have mounted shareholder proposals requesting that the board focus on nominating at least one female or minority director. Shareholders will vote on the third such proposal on Tuesday at Urban Outfitters’ annual meeting in Philadelphia, where Richard Hayne, the chairman, C.E.O. and a co-founder, will preside.

To support their argument, these shareholders, including Calvert Investment Management, the Connecticut Retirement Plans and Trust Funds and the New York State Common Retirement Fund, cite research showing that companies with some heterogeneity among directors outperform those with none.

Studies done in 2007 and 2011 by Catalyst, a nonprofit organization that promotes opportunities for women in business, found that in two measures — return on sales and return on invested capital — companies with more women as directors significantly outperformed those with fewer.

“We’ve taken a very strong position that diversity on boards better positions a company to understand what’s going on in an increasingly diverse marketplace,” said Thomas P. DiNapoli, the New York state comptroller, who oversees the retirementfund.

Given that so many of Urban Outfitters’ customers are women, you might expect its directors to embrace the idea of adding a woman to its six-member board. But over the years that the diversity proposals have appeared on Urban Outfitters’ proxies, the company has urged shareholders to reject them. In this year’s filing, for example, the company said that imposing gender and minority requirements on the board selection process would be unduly restrictive and “would undermine the company’s holistic evaluation of candidates.”

Shareholder endorsement of the diversity proposal has been rising, though. It reached 39 percent in 2012, up from 23 percent of shares voted in favor of it in 2011.

And this support grows even larger if you remove from the calculation the shares owned by company insiders, who presumably voted their shares against the proposals according to the board’s recommendation. Subtracting the more than 30 million shares held by Mr. Hayne and his wife would bring the outside shareholder support for last year’s diversity proposal to 52.3 percent.

WITH that as a backdrop, let’s turn to this year’s proxy statement. In that document, in which companies describe the directors up for election, Urban Outfitters announced that it was — drum roll, please — nominating a woman to its board. It asked shareholders to support her at the coming meeting.

So who is the holistically evaluated candidate? Margaret Hayne, the wife of the chairman. Ms. Hayne, who is president of Urban Outfitters’ Free People division, joined the company in 1982.

Talk about poking your shareholders in the eye with a stick.

I asked Urban Outfitters about its nomination of Ms. Hayne, and whether it thought that would satisfy shareholders who were concerned about diversity. Neither the company’s director of investor relations nor Mr. Hayne responded to multiple requests for comment. Ms. Hayne could not be reached.

But Mr. DiNapoli took a dim view of the move. “To nominate someone who is also a long-term employee, an insider and married to the C.E.O. and chairman,” he said, “doesn’t pass the smell test of really trying to find someone that adds to diversity and is going to be an independent voice.”

Board diversity is not the only matter irking Urban Outfitters’ shareholders. Until this year, for example, its directors served for staggered terms, making it harder for shareholders to oust a group of them at once.

At the annual meeting in 2012, however, a majority of shareholders voted to declassify Urban Outfitters’ board, which would require directors to stand for election each year. The company’s directors again advised shareholders to vote against this proposal, but were unpersuasive. Instead of eliminating the staggered terms immediately, though, Urban Outfitters is making the change over the next few years.

Note well: Urban Outfitters is an extremely successful company. Over the last 12 months, its shares have risen 49 percent, and, last week, it posted record sales and a 39 percent earnings jump for its most recent quarter.

Perhaps the company’s directors think that superlative performance means that they can brush off shareholders’ concerns. Still, it hardly seems likely that adding an independent woman to the board would damage Urban Outfitters’ performance. And who knows? It might even enhance it.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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